Posted by Sean Kollar on March 03, 2006 at 19:08:01:
I was told to use a form 982 in regards to having my debts cancelled through a debt settlement company to either lower what I might have to pay or to clear it out completly. Is this true? Some people either never heard of that or don’t know how to fill out the form. I would appreciate any help in the matter.
I hope you comment is not directed to MY QUESTION! - Posted by wes
Posted by wes on February 19, 2006 at 17:56:20:
Because I just spent 7 hours in a Short Sale seminar yesterday that did not mention anything about the seller being liable for any Taxes on the negotiated differece.
YET. In the Information section of this site, Article 233 by Ms Dwan Bent-Twyford says this is the case.
I need clarification from someone that knows!!!
I trust that she does know what she is talking about but would like have this issue explained in further detail…
Keep in mind… - Posted by JT-IN
Posted by JT-IN on February 20, 2006 at 07:20:24:
That the insolvency test is based on whether the Debtor was insolvent prior to the foregivenss of Debt for the short sale. Most folks that qualify for a short sale have little trouble meeting the test of insolvency, as Lenders rarely foregive debt when viable assets exist. Of course there are exceptions, rare as they are…
What I do is explain to folks (briefly) that there is a potential tax consequence to short sales. I ask them if they have other assets from which to pay the amount owed…? When they say NO, then I mention that all that needs to happen is to have a qualified accountant state this properly at next years income tax filing, there should be no taxes as a result of the short sale.
I offer to pay to have my acct prepare their taxes in the coming year, which few actually take you up on… and then I document with a brief disclosure that states that they understand that there could be tax consequences as a result of debt foregiveness by their lender and that I have not given them tax advice and that they should seek the advice of a competent acct on the subject. This is signed at the time that they are signing all the other papers, and I never have an issue with anyone signing the disclosure, as long as it has been covered in advance, at the proper time…
JT-IN
form 982 - Posted by ken in sc
Posted by ken in sc on February 20, 2006 at 06:23:27:
The insolvency form for the IRS is here:
Not everyone qualifies for this form, but many do. Please remeber that the seller migt have had this problem with a foreclosure anyway. Lets say that 100K is owed and the property sells for 70K after the bank has foreclosed and then lists the property. The bank can still sue for the difference or send a 1099 for the difference. Also, I have noted the many times the lender either forgets or does not bother to send the 1099. But the issue does exist.
Ken
Your seller… - Posted by Marc Donovan
Posted by Marc Donovan on February 19, 2006 at 19:58:15:
… needs to contact your CPA (and if you don’t have one, get one). He needs to file a form that proves insolvency and there is a very strict time limit for this filing. This will negate any bad tax consequences for the debt foregiveness.
the seller is liable for - Posted by David Krulac
Posted by David Krulac on February 19, 2006 at 19:27:08:
debt relief, or the amount of mortgage/judgement/lien forgiveness and must pay Federal Income Tax on that per IRS rules and regs. There is an exception if the debtor is insolvent, which means has no asssets above liabilities.
Your seminar was woefully lacking in not bring that up.
Re: I hope you comment is not directed - Posted by Mark (SDCA)
Posted by Mark (SDCA) on February 19, 2006 at 18:47:55:
I assume that you are talking about the forgiveness of debt being counted as income. Yes, that is the case.
Re: Keep in mind… - Posted by wiunshet
Posted by wiunshet on March 28, 2006 at 07:20:01:
foregivenss
Re: Keep in mind… - Posted by wes
Posted by wes on February 20, 2006 at 13:08:55:
Thanks to you and everyone else for the helpful information!
Much appreciated!